A Simple Prescription for Social Media ROI

The consensus seems to be that creating an ROI for Social Media is hard. I’d like to suggest that it isn’t.

Formulating an ROI is a very simple formula – and until someone can rationally explain why Social Media is different I’ll get out my cookbook.

  1. Define the desired outcome (e.g., increase conversion rate by 3%).
  2. Define the specific actions that will be taken (e.g., offer specials via blog, Twitter and Facebook with specific landing pages).
  3. Define the metrics and measures that will be used to determine if the actions taken were the proximate cause of the result.
  4. Perform the actions and analyze the metrics and measures.
  5. Determine cost of actions and the value of the resultant change in the outcome.

money clipart, banknote & coins.gif

The flaw in most approaches to Social Media ROI happens on the very first step. If you can’t assign real value to the desired outcome you can’t create an ROI. A perfect example is “We’d like to double our followers on Twitter and fans on Facebook”. Some people will call this a “soft ROI” – which is simply another way of saying that the desired outcome can not be assigned a real value, but affects another metric that can. The relationship between the desired outcome (more followers/fans) and the real value metric (sales) is usually highly theoretical – our just plain wishful thinking. If you believe more followers or fans equates to higher sales – say so. Design your ROI experiment and prove it.

The other flaw is in step 3. Failing to adequately define the input metrics (the metrics that are the proximate cause of the change in outcome) leads to an ROI that does not bear scrutiny. Examples of poorly defined input metrics are:

  • Increase our Social Media Presence
  • Get more engagement
  • Have better sentiment about our brand
  • Be influential in our space

Avoid those two traps and you’ll be well on your way. But there is one mistake I see more than any other:

Stop trying to create a “pure” or “standalone” Social Media ROI!!

Another way to put this – in terms of our recipe above – is:

If your desired outcome is a Social Media metric or measure – think again.

I’ll end the suspense for you right now, it doesn’t exist. The only way to ROI a Social Media effort is by showing that your Social Media effort is the proximate cause of a change in a fundamental business metric (e.g., sales, conversion rate, leads generated, churn, etc).

CRM is a great example of this – I was involved in dozens of large footprint CRM deployments. Well over half of those were done based on a solid ROI – but it had nothing to do with customers. The ROI was based purely on cost savings in IT. Do I believe those deployments had other benefits which were harder to measure and quantify? Sure. But the way to prove the investment had a return was to focus on what was proven, repeatable and tangible.

I think Social Media is much easier to ROI than CRM was. I don’t think we will end up creating ROI based on savings in IT. I am, however, certain that the ROI will have to point to real dollars saved or real dollars generated.

I’m convinced that when you focus on determining which Social Media metrics are the proximate cause of change in core business metrics you’ll find an ROI – and I’m betting it will be both larger and more diverse than you would have predicted.

5 thoughts on “A Simple Prescription for Social Media ROI

  1. Fantastic. Love the “Proximate Cause” lesson. Interestingly, this post helps clarify the disconnect in the ROI conversation. Many business folks will not invest in something which can not be verified as the “Ultimate Cause.” However, I sense you've accurately identified “Proximate Cause” as the rhythm of SMROI. This will make it acceptable to a broader business community over time. IMO

    Like

    1. Thanks Jim – Proximate Cause is an important concept for formulation of ROI. As importantly, folks have to stop trying to ROI on metrics that do not have a direct and hard value. That dog just won’t hunt.

      Like

    2. Thanks Jim – Proximate Cause is an important concept for formulation of ROI and is already widely used and accepted in enterprises. As importantly, folks have to stop trying to ROI on metrics that do not have a direct and hard value. That dog just won't hunt.

      Like

  2. Fantastic. Love the “Proximate Cause” lesson. Interestingly, this post helps clarify the disconnect in the ROI conversation. Many business folks will not invest in something which can not be verified as the “Ultimate Cause.” However, I sense you've accurately identified “Proximate Cause” as the rhythm of SMROI. This will make it acceptable to a broader business community over time. IMO

    Like

  3. Thanks Jim – Proximate Cause is an important concept for formulation of ROI and is already widely used and accepted in enterprises. As importantly, folks have to stop trying to ROI on metrics that do not have a direct and hard value. That dog just won't hunt.

    Like

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